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PFIC reporting means filing IRS Form 8621, once for each passive foreign investment company you own shares in, and attaching it to your US tax return. A foreign corporation is a PFIC if 75% or more of its income is passive, or at least 50% of its assets produce passive income. It’s a US rule, so it matters to you only if the IRS treats you as a US person.
What makes a foreign company a PFIC?
The IRS runs two tests on the corporation each year. Pass either one and the company is a PFIC for that year. The income test looks at gross income. The asset test looks at the average share of assets that produce passive income, such as dividends and interest.
Whether a particular Canadian mutual fund or ETF meets the definition is something I couldn’t confirm. The test is about a foreign corporation, so the fund’s legal structure matters. Ask the fund company or a US tax preparer, and get the answer in writing.
Who has to worry about it in Canada?
Anyone the IRS counts as a US person who lives here and holds foreign investments. Think of Alex, a US citizen who moved to Vancouver years ago and keeps a few shares in non-US companies. Alex still files a US return every year, and a PFIC in that portfolio brings Form 8621 along with it. If you have no US tax filing at all, this page doesn’t apply to you.
When do you have to file Form 8621?
You file when something happens with the shares. The IRS lists the triggers.
| Trigger for Form 8621 | What it means |
|---|---|
| Distribution | You received a payout from the PFIC |
| Gain on sale | You recognized a gain when you disposed of the shares |
| Election | You made or reported a QEF or mark-to-market election |
| Annual report | Section 1298(f) requires one for the year |
Each PFIC gets its own form. Own five, file five. The form goes in with your return by its due date, extensions included.
There’s a small exception. If your PFIC shares total $25,000 or less at year end ($50,000 on a joint return) and you had no excess distribution or gain, you may skip Part I. Check the current instructions for the exact wording, because it doesn’t cover everything.
Which tax regime applies to your PFIC?
You end up in one of three. Under the qualified electing fund election you include your share of the company’s ordinary earnings and net capital gain in income each year. Under mark-to-market you adjust for the change in fair market value each year, but only for marketable stock. If you make neither election, the default section 1291 rules apply. They tax excess distributions with an interest charge.
The default carries an interest charge, which is why people look at the elections. Each election has its own conditions. Those weren’t confirmed here, so this is the point where a US tax preparer earns the fee.
A worked example of an excess distribution
An excess distribution is the part of this year’s payout that’s more than 125% of the average of the three years before. Say your PFIC paid $400, $500 and $600 in those years. The average is $500, and 125% of that is $625. This year it pays $1,000. So $375 is treated as excess, and the default regime handles it with the extra interest charge.
That’s only the US side. Canada taxes the same investment under its own rules. If you sold shares in Ontario at a $5,000 gain while earning $80,000, the capital gains tax calculator shows $741.25 of extra Canadian tax, 14.8% of the gain. The US answer can be very different, and you can’t just add the two.
What can you do this year to get ahead of it?
Make a list of every investment you hold outside the US, with the name, the account and the year you bought it. Then ask each provider whether it’s a foreign corporation and whether it has ever told clients it’s a PFIC. Some funds publish the figures investors need for the elections, and some don’t. Keep purchase dates and prices too, because the default regime reaches back across your whole holding period.
It’s a boring afternoon, but it’s a lot cheaper than finding out three years late.
Mistakes people make with PFICs
The biggest is not knowing the fund is a PFIC until a preparer spots it years later. The second is assuming a Canadian tax slip settles the US question. It doesn’t.
A third is missing forms in a year with no sale. The IRS trigger list includes elections and annual reports, so a quiet year can still need a form.
Look at your holdings once a year. Use the dividend tax calculator and the income tax calculator for the Canadian side. The TFSA calculator covers growth inside a TFSA, though I couldn’t confirm how the IRS treats holdings in one.
Where these figures come from
The 75% and 50% tests, the filing triggers, the $25,000 and $50,000 levels and the 125% rule come from the IRS instructions for Form 8621, read in September 2026. The Canadian gain example uses this site’s 2026 Ontario data. Nothing here is advice on US filings, and this site has no link to the IRS or the CRA.
Frequently asked questions
What is a PFIC?
A foreign corporation with 75% or more passive income, or with at least 50% of its assets producing passive income.
How many Form 8621 do I file?
One for each PFIC. The form is attached to your tax return and due when the return is due, extensions included.
Is there a threshold that lets me skip part of the form?
There is a $25,000 exception ($50,000 joint) for Part I when you have no excess distribution or gain. Read the current instructions for its limits.
What is an excess distribution?
The part of a payout that's above 125% of the average distributions on the shares over the three previous years.
Is my Canadian mutual fund a PFIC?
We couldn't confirm that for any given fund. Ask the fund company or a US tax preparer, and get it in writing.
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